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Saturday, October 16, 2010

Pushing On a String

Richard W. Fisher, President

Federal Reserve Bank of Dallas

on the need for more quantitative easing:

"Given that we at the Fed are mandated to maintain price stability and create the monetary conditions to encourage maximum employment growth―at a time when inflation is 'somewhat below' what the Committee as a whole judges appropriate―I instinctively understand the impulse to put the monetary pedal to the metal to try to move the needle on employment growth. And yet the efficacy of further accommodation at this point has yet to be established....

Of course, if the fiscal and regulatory authorities are able to dispel the angst that businesses are reporting, further accommodation might not even be needed. If job-creating businesses are more certain about future policy and are satisfactorily incentivized, they are more likely to take advantage of low interest rates, release the liquidity they are hoarding and invest it robustly in hiring and training a workforce that will propel the American economy to new levels of prosperity, rendering moot the argument for QE2. The key is to remove or reduce the tax and regulatory uncertainties that act as an impediment to businesses responding to an increase in final demand. I think most all would consider this to be a far more desirable outcome than being saddled with a bloated Fed balance sheet....

There is a great deal of legitimate debate still to take place within the FOMC on the subject of quantitative easing and the pros and cons and costs and benefits of further monetary accommodation. Whatever we might do, if anything, must be consistent with long-term price stability and not add to the nightmare of confusing signals already being sent to job creators."